Part II: A Primer on Additional Insured Endorsements

This is the second in a series of Broker Basics. Part I dealt with issuing certificates of insurance in accordance with third parties' requirements. This part deals with the corresponding issuance of additional insured endorsements at the request of third parties.

Normally, issuing a certificate of insurance pursuant to a client's request is fairly routine. The certificates are issued by the agent of an insurer, and the agent typically sends a copy of that certificate to the insurer - although some agents are authorized to issue endorsements on behalf of the insurer. If the third party has asked your client for additional insured coverage and the agent does not have authority to issue an endorsement, the insurer will issue an endorsement upon receipt of a copy of the certificate. The agent will insert language in the Description of Operations section of the certificate stating that the Certificate Holder is an additional insured.

Do Certificates of Insurance Provide Additional Insured Coverage?

Certificates of insurance do not provide additional insured coverage without an endorsement. However, in practice, third parties may be willing to accept the certificate of insurance without the additional insured endorsement despite the disclaimer language on the certificate, which states: "This Certificate is issued as a matter of information only. It confers no rights on the Certificate Holder."

The inherent misnomer about additional insured coverage under a certificate of insurance has led to more sophisticated third parties requiring the additional insured endorsement. Moreover, the ACORD Certificate of Insurance Form 125S includes an additional insured letter, which states specifically that the Certificate Holder has no additional insured coverage without an endorsement.

In cases where an endorsement is required, it is useful to have a basic understanding of the standard industry Insurance Services Office (ISO) forms. Despite what some brokers think, the standard ISO form CG 20 10 (Additional Insured - Owners, Lesses or Contractors - Scheduled Person or Organization) is not acceptable in all situations.

Beyond the CG 20 10

ISO form CG 20 10 is probably the most commonly used endorsement. This endorsement provides coverage to your insured's clients against liability arising out of your insured's ongoing operations for the third-party client.

The CG 20 10 is not suitable in lease situations, where the lessee is not providing any services or goods for the third-party lessor. Nor would the CG 20 10 work when a permit is issued by a state or political subdivision, because your insured is not peforming operations for the state or political subdivision.

Obtaining permits from public entities

Public entities typically request additional insured coverage with respect to all permits they issue to third parties. In this case, the CG 20 10 will not work, because the permittee is not performing operations for the state or political subdivision.

The standard ISO form for permits is Additional Insured - State or Political Subdivisions - Permits (CG 20 12). This endorsement provides coverage only with respect to permitted operations of the permittee. This is a restrictive endorsement which provides only limited coverage within the scope of the permit.

If CG 20 12 is not approved by the insurer, another alternative is the broad form additional insured endorsement Additional Insured - Designated Person or Organization (CG 20 26). This endorsement provides coverage to the state or political subdivision with respect to the operations of the permittee, and such coverage is not limited to operations under the permit. Therefore, if liability is incurred as the result of acts of the permittee which are not within the scope of the permit, the state or political subdivision has additional insured coverage under CG 20 26. Arguably, the state or political subdivision should not be held liable for acts of the permittee that are outside of the scope of the permit, but use of CG 20 26 prevents any potential dispute over additional insured coverage.

One other endorsement sometime used is Additional Insured - Controlling Interest (CG 20 05). This endorsement can be used to add as an additional insured the Owner of land which the insured leases or occupies, or the person or entity responsible for maintenance or control of the land which the insured leases or occupies. Since this endorsement was intended to be used when the third-party is the controlling interest of the insured, it typically is not used for permits.

Many state or political subdivisions will require a manuscript endorsement, which provides specific coverage. For example, these custom endorsements may include cancellation provisions, primary coverage provisions, and severability of interest clauses. Some insurers will not sign manuscript endorsement, based either upon filing requirements in their state of domicile or internal policy. In those cases, the same coverage in the manuscript endorsement can be obtained through use of standard ISO endorsement forms.

Lease Agreements

Lease Agreements are also not anticipated by the standard additional insured endorsement CG 20 10 (Additional Insured - Owners, Contractors, Lessees) since the insured is not performing any work for the third-party Lessor or Lessee.

Standard additional insured endorsements for leases are CG 20 12 and CG 20 24. It is not always possible to address third parties' insurance requirements at placement or renewal. Your client will probably not know in advance the insurance requirements of contracts to be entered into or permits to be obtained during the policy period.

One other endorsement sometime used is Additional Insured - Controlling Interest (CG 20 05). This endorsement can be used to add as an additional insured the Owner of land which the insured leases or occupies, or the person or entity responsible for maintenance or control of the land which the insured leases or occupies. Since this endorsement was intended to be used when the third-party is the controlling interest of the insured, it typically is not used for permits.

Endorsements Required

Many third parties will require your client to provide specific endorsements to the required policies. Your best strategy is to ensure, in advance, that the carrier to be used will offer these coverages. Your client should be aware that there may be an additional premium charge for these additional coverages and that the additional premium charge often is greater when the coverage is added midterm instead of at placement or renewal.

One area that can lead to delays for your client is the additional insured endorsement required by a third party. You, as the broker or agent, should be familiar with the standard industry forms. Some carriers will only offer specific forms and some will refuse to complete special endorsement forms required by some public entities.